“We’re number one, we’re number one…” I bet you didn’t realize that over the summer the United States surpassed Russia and Saudi Arabia, the former #1, in the production of Oil and Natural Gas around the globe.
Now understand these global oil powers are not just idly sitting by and rooting us on. Russia and many of the Middle Eastern countries rely heavily on their production and exports of oil and gas for their government budgets. Having another strong player in the market eats into their revenue and the additional supply reduces the price of oil. For further proof that US Oil and Gas production is a force to be reckoned with we can look at a couple recent events.
This week Saudi Arabia, who basically runs OPEC, came up with the idea that if they can’t control global supply and spot prices like they have grown accustom too, they would just dictate the price they sell oil to various countries. They raised their sale prices to Europe and Asia, who are much more dependent on the Middle East for their oil and gas. However, they lowered the price of oil that they sell to the United States. See, we may be the #1 producer now, but we are still not energy “independent” and continue to import large quantities of oil from overseas. The thought process behind this move by Saudi Arabia is to continue to make their oil more attractive at the lower prices and squeeze the margins of the domestic producers to a point that they may leave the market. While this is a sly move by the Saudis, the breakeven point for many of the domestic producers is much lower than current price levels, giving them much more staying power than one may think.
Another interesting development is happening right now as part of a Transatlantic Trade Agreement being negotiated between North America (US & Canada) and the European Union (EU). The EU is sick of all the bully tactics from their oil and gas suppliers and is looking to North America to exponentially increase exports to Europe. This could be a great opportunity for domestic producers, assuming the politicians get it right.
So how does all this affect you as an investor? Opportunity! Many say we are in the early innings of this Energy Renaissance in the United States. Looking at the response from the international competition, we are a serious player and should be one for a long time. Make this an investment theme in how you develop and diversify your portfolio. It is not just looking for a bunch of energy and energy infrastructure companies, or adding a bunch of Energy Master Limited Partnerships (MLPs) to your portfolio. There are chemical companies whose products aid in the refining process; transportation companies that move the oil and gas across the country, as well as those companies that manufacture the vehicles that help around the work sites. Let’s not forget the companies that produce the materials for building these pipelines, riggings, and various facilities, along with technology companies that develop ways to make the process better and more efficient.. Do a little digging of your own and you can find plenty of companies that benefit from this Energy Renaissance and still allow you to diversify your portfolio amongst other sectors and industries.
The success of this Energy Renaissance is huge for the United States economy. Think outside the box, and as an investor, you can find many different ways to profit from this this, besides the lower gas prices at the pump.